Marchionne’s magic in the FIAT/General Motors agreement.

Sergio Marchionne was the manager who succeeded, thanks to his corporate skills, to save and re-structure the fiat group, a group that, over the years, has arrived several times close to bankruptcy.

It was March 13, 2000 when the group signed an agreement with GM (General Motors). The American group buys 20% of Fiat auto, while FIAT acquires 5.15% of the capital of GM, becoming the first private partner in importance. In addition to this, Fiat is granted a sale right (put option) of the remaining 80%, which can be exercised between January 2004 and July 2009.

Since 2001 things have started to go wrong, the crisis has declined sales and, as a consequence, the Fiat stock fell on the stock exchange from the level of about 7 euros (price of the stock at the time of the agreement) to 1.5 euros per share.  General Motors is not immune to the crisis, the stock falls on the stock market from $ 55 per share to around 40.

On March 2005 when Marchionne goes to Detroit, and to the CEO of GM, unexpectedly, shows the balance sheets not of Fiat, but of GM! He convinces him that it is not convenient for GM to buy Fiat ... If he bought it, GM would fail, dragged into the abyss by a company that loses almost a billion dollars a year. (see attached budget).

Here is therefore the magic of Marchionne ... Instead of selling the entire car sector, which at that time is worth about 3 billion dollars, he managed to get 2 billion dollars and also get rid of the put option from the hands of the Agnelli family which, if exercised, would have forced GM to buy.

With 2 billion dollars fresh in cash, the group starts again. New ideas, new products, new marketing ... the rest is history ... The new 500 conquers the world, the title starts again and, from the minimum of 1.5 euros per share rises up to the current 16 euros per share. (See attached chart: Red arrow: agreement with GM, Green arrow: divorce from GM)

At this time, a lot of people are protesting about Marchionne that he only worked for the interests of the shareholders and less to those of the employees. But we don’t think so! What would have happened that, instead of preventing the sale of Fiat, leaving it in the hands of the Agnelli family, had it sold to the Americans?

Are we sure the new owners would have done the interests of the employees? I believe that, like all successful people, Marchionne had at heart the fate of its employees and that this masterpiece made with GM, after all, was also decided to save thousands of workers.




Past performance is not a guide to future results. This information is being provided solely for information purposes and should not be deemed or construed as investment advice, advice concerning particular investments, advice concerning investment decisions, tax or legal advice. Similarly, any views or opinions expressed are not intended and should not be construed as investment, tax and/or legal recommendations or advice.  No person should act upon any opinion and/or information in this document without first obtaining professional advice.

0 - Comments